Fed minutes signal officials ready to raise rates again soon

IG Sentiment

Fed minutes signal officials ready to raise rates again soon

In discussing why the Fed thought it was appropriate to hold off on raising rates at its meeting early this month, the minutes said "members generally judged that it would be prudent to await additional evidence indicating that the recent slowdown in the pace of economic activity had been transitory before taking another step" to raise rates.

Those rate hikes reflect the Fed's confidence in an economy that has recovered well from the Great Recession.

"The minutes were indicative of a June hike", said Thomas Roth, head of Treasury trading at MUFG Securities America in NY.

The U.S. 10-Year fell almost 1% to 2.261 on the back of the Fed's minutes, confirming consensus among Fed officials that the U.S. central bank's balance sheet should be reduce this year. "Rallies across US stock exchanges support the perception that investors remain focused on the underlying economic strength rather than the consequent interest rate rises", he said in a commentary.

But, according to the May 2-3 meeting minutes, they also agreed they should hold off on raising interest rates until they knew a recent USA economic slowdown was temporary.

It sounds scary to think that the Fed will soon reduce its war chest of bonds.

The majority of Asian stocks surges today as the Federal Reserves' meeting roused the possibility of another interesting hike by next month; S&P 500 also manages to catch the fire surrounding the Fed's meeting, gaining a sizable amount of increase while also pulling Asian stocks on the sides.

The Fed's next decision on monetary policy is due June 14. "It won't lift the rate structure much", he said. Lowe's shares fell $3.50, or 4.3 percent, to $78.84.

The outlook for the USA dollar is generally positive in an environment where the Fed is hiking rates.

The Federal Reserve seems bent on proving Galbraith right, this time when it comes to guidance about what it intends to do with its $4.5 trillion balance sheet, which expanded sharply in response to the Great Recession of 2007-2009.

The central bank raised rates in March and December, amid a wave of optimism in the early days of Trump's term, with his promises of tax cuts, deregulation and big infrastructure spending. While this should be positive for the dollar, the market reaction was to sell off the greenback and US Treasury yields fell immediately after the FOMC minutes.

ANALYST TAKE: "While a 9-month extension to production cuts is widely anticipated, comments from delegates are expected to move prices significantly and remain a driver throughout the day", said Henry Croft, research analyst at Accendo Markets.

The minutes gave some more detail on reinvestment policy, implying that it would soon formally outline its policy and possibly start contracting its balance sheet later in 2017. This implied traders did not expect that fewer bond purchases from the Fed would push up longer-dated yields.

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